Miller (1915) 185 Mich. 565, 152 N. W. 257.

Minnesota. (1917) 138 Minn. 72, 163 N. W. 769; First Nat. Bank v. Denfeld (1919) 143 Minn. 281, 173 N. W. 661; State Bank v. Missia (1920) 144 Minn. 410, 175 N. W. 614; Albrecht v. Rathai (1921) Minn. —, 185 N. W. 259. Missouri. Hoeley v. South Side Bank (1920) 280 Mo. 336, 217 S. W. 504; Jobes v. Wilson (1910) 140 Mo. App. 281, 124 S. W. 548; Bank of Ozark v. Hanks (1910) 142 Mo. App. 110, 125 S. W. 221; Hill v. Dillon (1910) 151 Mo. App. 86, 131 S. W. 728, s. c. on second appeal (1913) 176 Mo. App. 192, 161 S. W. 881; Link v. Jackson (1911) 158 Mo. App. 63, 139 S. W. 588, s. c. on second appeal in (1912) 164 Mo. App. 194, 147 S. W. 1114; Birch Tree State Bank v. Dowler (1912) 163 Mo. App. 65, 145 S. W. 843; Southwest Nat. Bank v. House (1913) 172 Mo. App. 197, 157 S. W. 809; Scheidel Western X-Ray Co. v. Bacon (1918) Mo. App. 201 S. W. 916; Downs v. Horton (1919) Mo. App. -, 209 S. W. 595; Lindsay v. Thomas (1919) Mo. App. -,213 S. W. 513; Depres, Bridges & Noel v. Galloway (1920) Mo. App. ―, 224 S. W. 998; Ensign v. Crandall (1921) Mo. App. —, 231 S. W. 675; Bank of Hale v. Linneman (1921) Mo. App.., 235 S. W. 178.

Stevens v. Pearson

--

Nebraska Ostenberg v. Kavka (1914) 95 Neb. 314, 145 N. W. 713; Union Nat. Bank v. Moomaw (1921) Neb. - 184 N. W. 51. New Hampshire.-Mechanics' Sav. Bank v. Feeney (1919) N. H. 108 Atl. 295.

De Jonge & Co. v. Woodport Hotel & Land Co. (1909)

77 N. J. L. 233, 72 Atl. 439.

New Mexico. Gebby v. Carrillo (1918) 25 N. M. 120, 177 Pac. 894.

New York. Strickland v. Henry (1901) 66 App. Div. 23, 73 N. Y. Supp. 12 (obiter); Consolidation Nat. Bank v. Kirkland (1904) 99 App. Div. 121, 91 N. Y. Supp. 353; Eisenberg v. Lefkowitz (1911) 142 App. Div. 569, 127 N. Y. Supp. 595; Johnson County Sav. Bank v. Kornhauser (1916) 174 App. Div. 136, 160 N. Y. Supp. 913;

Sproul v. Beskin (1917) 179 App. Div. 275, 166 N. Y. Supp. 606 (see (1921) — App. Div. - 189 N. Y. Supp. 956, for later proceedings in this case); Security Bank & T. Co. v. Dery (1921) 194 App. Div. 572, 185 N. Y. Supp. 476; Royal Bank v. German-American Ins. Co. (1908) 58 Misc. 563, 109 N. Y. Supp. 822; Rafsky v. Frederick A. Smith Co. (1913) 79 Misc. 353, 139 N. Y. Supp. 1088; Moak v. Twentythird Ward Bank (1917) 100 Misc. 488, 165 N. Y. Supp. 1055; Packard v. Figliuolo (1909) 114 N. Y. Supp. 753; Midwood Park Co. V. Baker (1910) 128 N. Y. Supp. 954, affirmed without opinion in (1911) 144 App. Div. 939, 129 N. Y. Supp. 1135, which was affirmed without opinion in (1913) 207 N. Y. 675, 100 N. E. 1130.

North Carolina. American Nat. Bank v. Fountain (1908) 148 N. C. 590, 62 S. E. 738; Myers v. Petty (1910) 153 N. C. 462, 69 S. E. 417; Chadwick v. Kirkman (1912) 159 N. C. 259, 74 S. E. 968; Fidelity Trust Co. v. Ellen (1913) 163 N. C. 45, 79 S. E. 263; Third Nat. Bank v. Exum (1913) 163 N. C. 199, 79 S. E. 498; Fidelity Trust Co. V. Whitehead (1914) 165 N. C. 74, 80 S. E. 1065, Ann. Cas. 1915D, 200; Merchants Nat. Bank v. Branson (1914) 165 N. C. 344, 81 S. E. 410; First Nat. Bank v. Warsaw Drug Co. (1914) 166 N. C. 99, 81 S. E. 993; American Exch. Nat. Bank v. Seagroves (1914) 166 N. C. 608, 82 S. E. 947 (rule recognized); Standard Trust Co. v. Commercial Nat. Bank (1914) 167 N. C. 260, 83 S. E. 474 (rule recognized); Smathers v. Toxaway Hotel Co. (1915) 168 N. C. 69, 84 S. E. 47; Wilson v. Lewis (1915) 170 N. C. 47, 86 S. E. 804; J. E. Latham Co. v. Rogers (1915) 170 N. C. 239, 1 A.L.R. 11, 87 S. E 34; Moon v. Simpson (1915) 170 N. C. 335, 87 S. E. 118 (obiter); Metropolitan Discount Co. v. Baker (1918) 176 N. C. 546, 97 S. E. 495; Dennison v. Spivey (1920) 180 N. C. 220, 104 S. E. 370.

Oklahoma.-LAMBERT V. SMITH (reported herewith) ante, 1; Mangold & G. Bank v. Utterback (1918) Okla. 174 Pac. 542; STEVENS v.

Pennsylvania. Schultheis v. Sellers (1909) 223 Pa. 513, 22 L.R.A. (N.S.) 1210, 72 Atl. 887; Second Nat. Bank v. Hoffman (1911) 229 Pa. 429, 78 Atl. 1002; Grange Trust Co. v. Brown (1912) 49 Pa. Super. Ct. 274; Kensington Nat. Bank v. Ware (1906) 32 Pa. Super. Ct. 247; Eliel v. Chamberlain (1912) 48 Pa. Super. Ct. 610; Horrell v. Reeves (1919) 72 Pa. Super. Ct. 129; Rothrock v. Panzera (1919) 72 Pa. Super. Ct. 349; Citizens' Nat. Bank v. Stein (1912) 21 Pa. Dist. R. 1070.

Tennessee.-Elgin City Bkg. Co. v. Hall (1907) 119 Tenn. 548, 108 S. W. 1068.

Utah.-Leavitt v. Thurston (1911) 38 Utah, 351, 113 Pac. 77; Miller v. Marks (1914) 46 Utah, 257, 148 Pac. 412.

Washington.

Cedar Rapids Nat. Bank v. Myhre Bros. (1910) 57 Wash. 596, 107 Pac. 518; City Nat. Bank v. Mason (1910) 58 Wash. 492, 108 Pac. 1071; Gottstein v. Simmons (1910) 59 Wash. 178, 109 Pac. 596; Scandinavian American Bank v. Johnston (1910) 63 Wash. 187, 115 Pac. 102; Wells v. Duffy (1912) 69 Wash. 310, 124 Pac. 907; Peterson v. Nichols (1913) 71 Wash. 656, 129 Pac. 373. Wisconsin.-Hodge v. Smith (1907) 130 Wis. 326, 110 N. W. 192; Jones v. Brandt (1921) · - Wis. 181 N. W. 813.

In Altschul v. Rogers (1912) 22 Idaho, 512, 126 Pac. 1048, where the burden of proof was held to have been shifted to a subsequent holder, it seems that the subsequent holder himself had actual notice of the fraud.

In Keegan v. Rock (1905) 128 Iowa, 39, 102 N. W. 805, an action by the assignee of a mortgage, title to which had been obtained by the assignor through fraud, the court says that the plaintiff had the burden of proving that he acquired title as a holder in due course—that is, in good faith, and for value, and without notice, under the Negotiable Instruments Act.

The holder of a note obtained by duress was held to have the burden of showing that he was a holder in due course, in Phillips v. Eldridge (1915) 221 Mass. 103, 108 N. E. 909.

The holder of a note which was given upon the purchase of a saloon and the stock therein has, upon proof that the vendor fraudulently removed a large part of the stock before delivery to the purchaser, the burden of showing that he had no knowledge of the fraud. Goldberg v. Berg (1916) 93 Misc. 498, 157 N. Y. Supp. 209.

Where an agent deposited money belonging to his principal in a bank in his own name, and subsequently obtained a cashier's check from the bank with intent to embezzle and misappropriate the plaintiff's money so deposited, the agent's title to the check thus obtained was held in Singer Mfg. Co. v. Summers (1906) 143 N. C. 102, 55 S. E. 522, to be defective, so as to cast upon a subsequent holder the burden of showing his bona fides.

Evidence that a note was executed upon a condition that was never fulfilled throws upon the holder thereof the burden of showing his bona fides. Raleigh Bkg. & T. Co. v. Clark (1916) 172 N. C. 268, 90 S. E. 200.

The transferee of a note which had been paid was held to have the burden of showing his bona fides, in Baade v. Cramer (1919) 278 Mo. 516, 213 S. W. 121.

In Hoeley v. South Side Bank (1920) 280 Mo. 336, 217 S. W. 504, the holder of a note was held to have the burden of showing his bona fides, where the note was executed under the following circumstances: An agent employed to purchase property, being furnished with the money therefor, made the purchase and had the property conveyed to a "straw man," who executed a note secured by a mortgage on the property, subsequently the property was conveyed by the "straw man" to the principal, and, without her knowledge, the conveyance was made subject to the encumbrance.

The note involved in Merchants' Nat. Bank v. Wadsworth (1911) 166 Mich. 528, 131 N. W. 1108, was given after the Negotiable Instruments Act was adopted in that state. In adher

ing to the general rule that the burden was thrown upon a subsequent holder by a showing of fraud by the maker, the court makes no reference to the Negotiable Instruments Act.

Although the note involved in Central Nat. Bank v. Ericson (1912) 92 Neb. 396, 138 N. W. 563, seems to have been given after the Negotiable Instruments Law went into effect in that state, the court, in holding the burden of showing his bona fides cast upon a subsequent holder by a showing of fraud in the inception of the note, makes no reference to the statute.

Nor is the Negotiable Instruments Law referred to in connection with the burden of proof in People's Trust & Sav. Bank v. Rork (1914) 96 Neb. 415, 148 N. W. 95, although the note involved in that case seemed to have been given after the Negotiable Instruments Law was enacted. It is there held, in accord with the general rule, that upon a showing of fraud the burden is upon the subsequent holder to show his good faith.

It has been stated that the Negotiable Instruments Act does not change the rule of the law merchant as to the burden of proof, where fraud is shown, or where the title of the person negotiating the instrument is defective. Desharzo v. Lamar (1920) Ala., 85 So. 586; Parsons v. Utica Cement Mfg. Co. (1909) 82 Conn. 333, 135 Am. St. Rep. 278, 73 Atl. 785; Downs v. Horton (1919) Mo. App. 209 S. W. 595; Mechanics Sav. Bank v. Feeney (1919) N. H. 108 Atl. 295; Sutherland v. Mead (1903) 80 App. Div. 103, 80 N. Y. Supp. 504; Mitchell v. Baldwin (1903) 88 App. Div. 265, 84 N. Y. Supp. 1043.

Fraud in the inception of a note results in a defective title, within the meaning of the Negotiable Instruments Law. Ensign v. Crandall (1921) 207 Mo. App. 211, 231 S. W. 675.

The title of the payee of a partnership note executed by one of the partners to raise money to pay his individual contribution to the partnership, the payee having knowledge thereof, is defective within the meaning of the Negotiable Instruments Law so as to cast upon a subsequent

holder the burden of showing his bona fides. Lucker v. Iba (1900) 54 App. Div. 566, 66 N. Y. Supp. 1019.

Likewise, under the English and Canadian Bills of Exchange Acts, where an instrument is shown to be fraudulent, the burden of proving his bona fides rests upon a holder. Oakley v. Boulton (1888) 57 Times L. R. (Eng.) 60; Farmer v. Ellis (1901) 2 Ont. L. Rep. 544; Ridgeway v. Dansereau (1899) Rap. Jud. Quebec 17 C. S. 176; Nicholson V. McKale (1912) Rap. Jud. Quebec 41 C. S. 340, 5 D. L. R. 237; Kern v. Tamblyn (1914) 7 Sask. L. R. 64, 16 D. L. R. 529, 27 West. L. R. 608; Merchants Bank v. McLeod (1910) 14 West. L. R. (Can.) 461 (rule recognized); Merchants Bank v. Grimshaw (1904) 4 Ont. West. Rep. 179. Others of the Canadian cases cited above were decided after the Bill of Exchange Act was adopted, but there is no reference to the act in those cases. That the assignee of a note has the burden of showing his bona fides was held in Lundean v. Hamilton (1916) Iowa, 159 N. W. 163, in an action in equity to cancel the note and the mortgage securing it.

An early statute in Georgia, referred to in Robenson v. Vason (1867) 37 Ga. 66, provided that "the holder of a note is presumed to be such bona fide and for value; if either fact is negatived by proof the defendants are let in to all their defenses; such presumption is negatived by proof of any fraud in the procurement of the note."

c. Contra decisions.

In Georgia, the presumption of bona fides which arises in favor of the holder of an instrument negotiable by delivery is rebutted by a showing of procurement in fraud of the rights of a previous holder. Merchants' & P. Nat. Bank v. Masonic Hall (1879) 62 Ga. 271. The rule of Merchants' & P. Nat. Bank v. Masonic Hall (1879) 62 Ga. 272, was followed in Walden v. Downing Co. (1908) 4 Ga. App. 534, 61 S. E. 1127, in the case of a note which was transferred by indorsement. This case is, of course, overruled by the decision in Brantley v. Merchants & F. Bank (Ga.) infra.

But the presumption of bona fides which arises in favor of an indorsee of an instrument is not so rebutted. Brantley v. Merchants & F. Bank (1918) 22 Ga. App. 667, 97 S. E. 109, affirmed in (1919) 149 Ga. 88, 99 S. E. 41. That the presumption is not rebutted by a showing that the note was fraudulently taken possession of by the cashier of the payee bank is stated, also, in Harrell v. National Bank (1907) 128 Ga. 504, 57 S. E. 869, where the court, after referring to the fact that the subsequent holder in that case offered evidence to show that he had purchased the note in good faith. in the usual course of business, for a valuable consideration, before due, without notice of any dishonor, says: "It [the subsequent holder] could have relied upon the presumption afforded by the Code section above quoted, and required of the defendant proof that it was not a bona fide holder in order to defeat its right to recover." In Brantley v. Merchants & F. Bank (1918) 22 Ga. App. 667, 97 S. E. 109, affirmed in (1919) 149 Ga. 88, 99 S. E. 41, the reasoning by which the court arrives at this conclusion is as follows: The Code of Georgia contains the following provision: "The holder of a note is presumed to be such bona fide and for value; if either fact is negatived by proof, the defendants are let in to all their defenses; such presumption is negatived by proof of any fraud in the procurement of the note." It has uniformly been held in this state that "fraud in the procurement," as used in this statute, means fraud in the procurement of the note by the holder thereof, and has no reference to fraud in the contract out of which the note arose, or fraud of an intervening indorser. The Georgia Code contains no such provision as is contained in the Negotiable Instruments Act set out in § IV. b, supra, and the court argues: "Since the only rule upon the subject which it does contain appears to so plainly contemplate that the legal presumptions in favor of the holder shall continue to hold in his favor until combated by proof,-not that the original payee or an interven

ing indorser fraudulently obtained the note, but that the holder himself did, —we are disinclined to recognize any extension of the exception to this rule further than that literally prescribed by the language of the decision in the Merchants' & P. Nat. Bank Case. There would seem, in fact, to be a rational ground for distinction between a case where the holder comes into possession of an instrument capable of being passed merely by delivery, and where the holder comes into possession thereof by virtue of the solemn indorsement of the payee therein named. In the former case there is nothing except naked possession to indicate that the holder took it in good faith; whereas, in a case where the payee has entered his solemn indorsement thereon and thereby guaranteed its validity to subsequent transferees, there exists this manifest additional reason, as shown by the face of the instrument, whereby the subsequent taker should be held as having acted in good faith."

It is expressly denied in Morgan v. Yarborough (1839) 13 La. 74, 33 Am. Dec. 553, that the form of the transfer makes any difference as to the burden of proof.

There is a suggestion in Kelly v. Ford (1856) 4 Iowa, 140, and Clapp v. Cedar County (1857) 5 Iowa, 15, 68 Am. Dec. 678, that the presumption of bona fides is not rebutted by showing fraud; but in Lane v. Krekle (1867) 22 Iowa, 399, the Iowa court aligned itself with the majority rule, and, although there may be a slight implication to the contrary from the form of a part of an instruction to which the court's attention was not directed, in Lake v. Reed (1870) 29 Iowa, 258, 4 Am. Rep. 209, and also in Loomis v. Metcalf (1870) 30 Iowa, 382, in Woodward v. Rodgers (1871) 31 Iowa, 342, the court again announced the majority rule, and, with the exception of a case briefly reported in an appendix (Billingsly v. v. Craddock (1891) 82 Iowa, 721, 47 N. W. 893), has consistently adhered thereto. In Callendar Sav. Bank v. Loos (1909) 142 Iowa, 1, 120 N. W. 317, where there was an attempt to show duress in the procure

ment of a note, the court says it was incumbent on the maker to show that the indorsee was not an innocent purchaser of the note. This statement was made casually and without any discussion.

In the early case of Howard v. Shaw (1846) 9 Ir. L. Rep. 335, the view is taken that the indorsee of a note need not show his bona fide character until he is shown to have had notice of the fraud.

Apart from these few cases, the authorities are unanimous, as above stated, that fraud in the inception of a negotiable instrument casts upon one who claims to be a bona fide holder, or holder thereof in due course, the burden of proving his character as such.

II. Instrument fraudulently put in circulation.

Cases

In dealing with cases in which a note or other negotiable instrument was diverted or put into circulation fraudulently, this annotation has been confined to cases in which the instrument had no prior inception. involving the theft of negotiable instruments from the holder thereof, or diversion by an agent or person intrusted with the physical possession of the instrument after its inception, have in general been excluded. The decision in Knight v. Pugh (1842) 4 Watts & S. (Pa.) 445, 39 Am. Dec. 99, illustrates the diversion of a note after inception, a class of cases excluded from this annotation. In that case a note was given for the purchase price of land which the vendor covenanted to convey to the purchaser by deed of general warranty. After the agreement, a judgment was obtained against the vendor which became a lien on the land, and no conveyance of the land was made, and the encumbrances prevented the owner from making good title. The maker pleaded these facts and added that no consideration therefor passed to the maker from the vendor for the note, and that its "transfer to the plaintiff was a fraud on defendant." In holding that the plaintiff did not have the burden of showing consideration

(which seemed to be the only point of dispute in this case), the court says: "In cases other than those of negotiable notes obtained or put in circulation by fraud or undue means, the maker, by its negotiable character, agrees that the payee shall put it in circulation. He has no right, therefore, to complain of his own act, and a holder placing confidence in such paper ought not to be compelled to prove consideration. In many cases it would be exceedingly difficult to do so, and to require it would throw a serious impediment in the way of the circulation of negotiable paper. It is otherwise where there is fraud, because there the maker gives no such authority. He is in the light of an unfortunate rather than an imprudent man, and protection will be given to him so far as to require of the holder proof of a valuable consideration." Commenting on the facts of the case at bar, the court says: "Here the note was negotiable. It was to the order of Jackson without defalcation. Knight gave it on a contract deliberately made, and Jackson was authorized to pass it by indorsement. There is no suspicion cast on the means by which Jackson got it. It was all fair and according to contract. The indorsement was according to the tenor of the note, and to require a holder in such a case to prove the consideration would, we think, be putting a cloud on the circulation of negotiable securities which would tend to impair their use and employment."

Within the limits above indicated, it is a rule adhered to in a large number of cases, both prior to the Negotiable Instruments Act and under that act, that, where a note is put in circulation or diverted in fraud of the maker's rights, the burden is upon the holder to show his bona fide character.

United States.-Thompson v. Sioux Falls Nat. Bank (1893) 150 U. S. 231, 37 L. ed. 1063, 14 Sup. Ct. Rep. 94. Arkansas.-Bertrand V. Barkman (1852) 13 Ark. 151.

Iowa.-Iowa Nat. Bank v. Carter (1909) 144 Iowa, 715, 123 N. W. 237; Connelly v. Greenfield Sav. Bank (1921) Iowa,, 185 N. W. 887.